Question

Vineyard industries has the following revenue and cost structure: Sales $25000 Variable costs 20,000 Contribution Margin...

Vineyard industries has the following revenue and cost structure: Sales $25000 Variable costs 20,000 Contribution Margin 5,000 Fixed Costs 5400 Operating Income (400) If Vineyard industries can increase the volume of sales by 25%, operating income will be:

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Answer #1

Solution.

If Vineyard industries increase the volume of sales by 25%, operating income will be: $850

This Question is based on the Cost volume profit Analysis Concept.

Acoording to cost volume profit analysis variable cost changes according to changes in number of units sold. And FIXED cost Does not change.

Given Data

Sales $25000

Variable Cost (80% of sales)

(20000/25000)=.80

 ($20000)
Contribution margin (20% of Sales) $5000
Fixed Cost ($5400)
Operating Income ($400)

Now if Vineyaed Industries Increase the Volume of Sales by 25%, then operating income will be as calculated below.

Sales ($25000*125%) $31250

Variable Cost (80% of sales)

 ($25000)
Contribution margin (20% of Sales) $6250
Fixed Cost ($5400)
Operating Income $850
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